Investors turned to precious metals last year to protect their wealth during the coronavirus-led economic slowdown and uncertainty. However, the precious metals’ market has since corrected to a degree on positive news on the vaccine front. In fact, the market seems now to be under pressure due an uptick in long-term U.S. interest rates and a strengthening dollar. Consequently, the yellow metal declined as much as 4.5% last week, the most since November 2020.
Newmont Goldcorp Corporation (NEM) is the world’s leading gold mining company and a producer of other precious and industrial metals, including copper, silver, zinc, and lead. NEM has the largest gold reserve base in the metals mining industry, underpinned by its world-class ore bodies in top-tier locations. The stock has lost nearly 4.2% in the last five trading days.
NEM was one of the best performing stocks in 2020, with record revenue and cash-flow growth. In the third quarter ended September 30, 2020, its revenue for the quarter increased 17% year-over-year to $3.17 billion, due primarily to higher average realized gold prices. NEM produced 1.5 million attributable ounces of gold during the quarter. Its operating cash flow from continuing operations increased 101% year-over-year to a record $1.6 billion. Its non-GAAP EPS came in at $0.87, compared to the year-ago value of $0.86.
With a solid gold rally on the back of robust demand, the stock gained 46.6% in 2020. This impressive performance and the potential upside based on several factors has helped it earn a “Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates NEM:
Trade Grade: A
NEM is currently trading higher than its 50-day and 200-day moving averages of $61.83 and $61.90, respectively, which indicates that the stock is in an uptrend. In fact, the stock’s 6.2% return over the past month reflects short-term bullishness.
NEM and its joint venture partners recently achieved a key milestone. They announced the successful integration of the Alumbrera mine, plant and infrastructure with Yamana Gold’s (AUY) Agua Rica project to create the MARA project. Moreover, the company successfully completed two key projects last month at its Musselwhite mine in Canada, with the full commissioning of the mine’s conveyor system and material handling project.
Buy & Hold Grade: B
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, NEM is fairly positioned. The stock is currently trading 13.5% below its 52-week high of $72.22.
Over the past three years, the stock has returned nearly 70%. NEM’s top-line and EPS have grown at a CAGR of 15.3% and 168.1%, respectively, in the same period, driven by a sharp rise in gold shipments. NEM reported losses in 2017 but has improved its margins significantly since due to higher grade ores and higher realized gold prices.
NEM recently announced its 2021 outlook with attributable gold production guidance of 6.5 million ounces. In addition, attributable gold production is expected to be between 6.2 and 6.7 million ounces through 2023 and in a 6.5 -7 million ounces range in the longer-term through 2025.
According to the company’s management, “Newmont’s outlook remains strong and stable as we apply the rigor and discipline of our proven operating model across our world-class portfolio. Our five-year outlook reflects improving production and costs as we continue to deliver value from superior operational and project execution.”
Peer Grade: B
NEM is currently rated #3 of 56 stocks in the Miners – Gold industry. Other popular stocks in the group are Barrick Gold Corporation (GOLD), B2Gold Corp (BTG) and Eldorado Gold Corporation (EGO). While GOLD and BTG have gained 22.7% and 39.4%, respectively, in the previous year, EGO has returned 64.6% over this period.
Industry Rank: D
NEM is part of the StockNews.com Miners – Gold industry, which is ranked #113 of 123 industries. The companies in this industry develop mine sites, mine and quarry gold and silver, and prepare gold and silver for sale. Demand is driven by industrial production and economic growth. The pandemic led to country-wide shutdowns and reduced on-site presence. Though the economy opened up in the second half of 2020, mining activities are still lagging pre-pandemic levels.
Overall POWR Rating: B (Buy)
Overall, NEM is rated a “Buy” due to its continued top-line growth, portfolio strength, higher realized gold prices, and short- and long-term bullishness, as determined by the four components of our overall POWR Rating.
While vaccine optimism boosted investors’ risk appetite and some have shifted their focus from safe-haven assets to risky assets, gold is unlikely to face a bear market any time soon because the global economy remains weak.
NEM is well positioned to benefit from higher gold prices. The company’s outlook reflects increasing gold production and ongoing investment in its operating assets and promising growth prospects.
Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for NEM. An average broker rating of 1.52 indicates favorable analyst sentiment. Of20 Wall Street analysts that rated the stock, 15 advised buying NEM. Moreover, analysts expect NEM’s revenue and EPS for the full-year 2020 ended December to grow 78.8% and 93.9%, respectively, year-over-year. Hence, it may be wise for investors to buy NEM to capitalize on this short-term weakness.
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NEM shares were trading at $62.84 per share on Wednesday afternoon, up $0.35 (+0.56%). Year-to-date, NEM has gained 4.93%, versus a 1.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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